ECON 201 Final Example Questions

Coordination is difficult because A. players do not have all the information B. players are interested only in their own outcomes C. there are multiple equilibria D. coordination is always possible

C. there are multiple equilibria

Which of the following is a demand-side strategy for deterring entry? A. Learning by doing B. Mass production C. Research and development D. Adding switching costs

D. Adding switching costs

Which of the following is a reason that employers might pay more? A. A potential employee has a high degree of education B. A potential employee is the best and can be accessed by many people due to technology C. A job is costly to monitor D. All of the above

D. All of the above

Which of the following is NOT part of the rationale for efficiency wages? A. An efficiency wage encourages workers to work harder to avoid risking losing their jobs. B. An efficiency wage helps workers feel valued. C. An efficiency wage raises the gain to workers for working more. D. An efficiency wage rewards worker productivity with higher pay.

D. An efficiency wage rewards worker productivity with higher pay.

Which of the following is NOT a characteristic of perfectly competitive markets? A. There are many sellers. B. No seller has a significant market share. C. The products sold by all sellers are identical. D. Each seller sets its own price.

D. Each seller sets its own price.

Which of the following has the most market power? A. Perfect competition B. Monopolistic competition C. Oligopoly D. Monopoly

D. Monopoly

Which of the following would shift the labor supply curve? A. Technological advancement increases worker productivity. B. Demand increases for the output produced by workers. C. There is more effective management at companies. D. The government increases its provision of childcare services.

D. The government increases its provision of childcare services.

Which of the following is a characteristic of monopoly that is not present in other market structures? A. There are many buyers. B. The product is identical across all sellers. C. Sellers are price-takers. D. There is only one seller.

D. There is only one seller.

When the labor supply curve is backward-bending, then when the wage is A. low, the income effect dominates the substitution effect B. low, the income effect and substitution effects offset each other C. high, the income effect and substitution effects offset each other D. high, the income effect dominates the substitution effect

D. high, the income effect dominates the substitution effect

When an employer exerts monopsony power: A. product prices will be higher. B. product prices will be lower. C wages will be higher. D. wages will be lower.

D. wages will be lower.

As firms enter a market, their firm demand curves A. flatten B. steepen C. remain the same D. can flatten, steepen, or remain the same

A. flatten

Hendra has divided her customers into two groups so that she can charge a higher price to one group than the other. Which of the following is TRUE about the group paying the lower price? A. This group gains a higher marginal benefit from the product than the group paying the higher price. B. This group has a lower reservation price than the group paying the higher price. C. This group has more market power than the group paying the higher price. D. This group has a more inelastic demand than the group paying the higher price.

B. This group has a lower reservation price than the group paying the higher price.

Marcella is deciding whether to start a bakery in her hometown. She should start it if she expects that: A. her marginal revenue will be below her marginal cost. B. her average revenue will exceed her average cost. C. the average cost curve will shift downward. D. the number of bakeries will soon decrease.

B. her average revenue will exceed her average cost.

A market with price discrimination has a _ quantity and a _ price than a market without price discrimination. A. higher; higher B. higher; lower C. lower; higher D. lower; lower

B. higher; lower

When resources are shared or owned in common, the Nash equilibrium leads to: A. underuse of resources. B. overuse of resources. C. higher profits than with unshared resources. D. lower profits than with unshared resources.

B. overuse of resources.

Which of the following is an example of group pricing? A. the local café charges $3.50 for a cup of cappuccino B. A ham and cheese sandwich is $3.99 at the school cafeteria C. A hairdresser charges more for women's haircuts than for men's D. All of the above are examples of group pricing

C. A hairdresser charges more for women's haircuts than for men's

A compensating wage differential is: A. A wage that will make all workers want a particular job B. A wage above equilibrium wage C. A premium paid to workers in undesirable jobs D. A wage below equilibrium wage

C. A premium paid to workers in undesirable jobs

After Giselle increased worker training at her company, the output per worker rose by 5%. What impact would this have on labor's marginal revenue product and her demand for labor? A. Marginal revenue product would rise, and demand for labor would decrease. B. Marginal revenue product would decrease, and demand for labor would increase. C. Both marginal revenue product and demand for labor would increase. D. Both marginal revenue product and demand for labor would decrease.

C. Both marginal revenue product and demand for labor would increase.

A minimum wage creates unemployment because A. It is a price ceiling and therefore creates a surplus of labor B. It is a price ceiling and therefore creates a shortage of labor C. It is a price floor and therefore creates a surplus of labor D. It is a price floor and therefore creates a shortage of labor

C. It is a price floor and therefore creates a surplus of labor

In some countries, the birth rate is now below the replacement rate. What implications does this have for wages and employment in the future? A. Wages and employment will both rise B. Wages and employment will both fall C. Wages will rise and employment will fall D. Wages will fall and employment will rise

C. Wages will rise and employment will fall

John is thinking of opening a florist shop. He forecasts revenues of $200,000 per year and explicit financial costs of $140,000 per year. He can pursue this opportunity only if he quits his current job as a driver, where he earns $45,000 per year. He would also need to invest $110,000 of his savings to set up the shop—funds on which he would otherwise be earning a 6% return. Based on this information, how much economic profit or loss would John earn in his first year in business? A. a loss of $50,000 B. a loss of $5,400 C. a profit of $8,400 D. a profit of $60,000

C. a profit of $8,400

The Prisoner's Dilemma shows how markets: A. deliver the best possible outcomes. B. are based on collusive agreements in most cases. C. can deliver bad outcomes. D. minimize costs.

C. can deliver bad outcomes.

Inez owns a technology company. Which of the following conditions would make it difficult for her to price discriminate? A. Her market is highly competitive. B. Her product cannot be resold. C. She is aware of how much each customer is willing to pay. D. She is eager to increase her profits.

A. Her market is highly competitive.

Which of the following market structures has the flattest firm demand curve, all else equal? A. Perfect competition B. Monopolistic competition C. Oligopoly D. Monopoly

A. Perfect competition

Suppose the price of haircuts rises. What happens to the demand for hair stylists? A. The demand increases B. The demand decreases C. The demand does not change D. The effect on demand is ambiguous

A. The demand increases

Pak has divided his customers into two groups so that he can charge a higher price to one group than the other. Which of the following should be TRUE about the group that pays a higher price? A. This group gains a higher marginal benefit from the product than the group paying a lower price. B. This group has a lower reservation price than the group paying a lower price. C. This group has less market power than the group paying a lower price. D. This group has a more elastic demand than the group paying a lower price.

A. This group gains a higher marginal benefit from the product than the group paying a lower price.

Suppose you run a coffee stand. Your fixed costs are $10,000 for the equipment. Your variable costs are $1 per cup of coffee. You expect to sell 20,000 cups of coffee this year at a price of $3 per cup. What is your profit margin per cup of coffee? A. $2 per cup B. $1.50 per cup C. $0.50 per cup D. -$3 per cup (operating at a loss)

B. $1.50 per cup

If an employer infers that an individual is more or less "suited" to a particular job based on that individual's gender, the employer is exhibiting what type of discrimination? A. Prejudice B. Implicit bias C. Statistical discrimination

B. Implicit bias

What is the relationship among marginal revenue, marginal cost, and price in a firm with market power? A. Marginal cost = marginal revenue = price B. Marginal cost = marginal revenue < price C. Marginal Cost = marginal revenue > price D. Marginal revenue < price = marginal cost

B. Marginal cost = marginal revenue < price

The Prisoner's Dilemma usually leads to an equilibrium that is not the best outcome because the A. players do not have all the information B. players are tempted to take advantage of each other C. players do not understand how the game is played D. equilibrium outcome is always the best outcome

B. players are tempted to take advantage of each other

On a graph of a company's cost, revenue, and demand curves, the company's profit margin can be identified as the gap between _____ and _____ for a given quantity. A. price; marginal revenue B. price; average cost C. marginal revenue; marginal cost D. marginal revenue; average cost

B. price; average cost

Price ceilings _ economic surplus in perfectly competitive markets and _ economic surplus in imperfectly competitive markets. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

C. decrease; increase

The price in perfect competition is _ than the price under imperfect competition. The quantity is perfect competition is _ than the quantity under imperfect competition. A. higher; higher B. higher; lower C. lower; higher D. lower; lower

C. lower; higher

How should you set group prices? A. set one price for all consumers B. set a different price for each consumer C. set prices for different groups as you would for different markets D. set supply equal to demand

C. set prices for different groups as you would for different markets

Your best response is A. your favorite choice B. the choice that yields the highest payoff C. the choice that yields the highest payoff given the other player's choice D. the choice that ensures the other player receives the lowest payoff

C. the choice that yields the highest payoff given the other player's choice

When there is free entry and exit of sellers in an industry, in the long run, sellers will have: A. positive economic profits. B. economic losses. C. zero economic profits. D. enhanced market power.

C. zero economic profits.

Price discrimination A. increases efficiency relative to a market without price discrimination B. decreases efficiency relative to a market without price discrimination C. has the same level of efficiency of a market without price discrimination

A. increases efficiency relative to a market without price discrrimination

Which of the following is a variable cost? A. labor wages B. rent C. taxes D. dividends

A. labor wages

What is the relationship among marginal cost, marginal revenue, average cost, and price in a market with imperfect competition and free entry in the long run? A. marginal cost = marginal revenue < price = average cost B. marginal cost = marginal revenue = price = average cost C. marginal cost = average cost < price = marginal revenue D. marginal cost = marginal revenue = average cost < price

A. marginal cost = marginal revenue < price = average cost

If the demand for labor rises, what happens to the wage and the hours of employment? A. Wage rises and hours of employment rise B. Wage rises and hour of employment fall C. Wage falls and hours of employment rise D. Wage falls and hours of employment fall

A. Wage rises and hours of employment rise

When a seller uses group pricing, members of the same group pay A. a price equal to that buyer's marginal benefit. B. an individually negotiated price. C. the same price for the product. D. an escalating price.

C. the same price for the product.